India 8 November 2016: India
has over 40 tier II and tier III cities with million-plus populations,
and some of these are growing as fast as their tier I counterparts.
Several have been selected under the Central Government’s Smart Cities
mission, and will therefore attract investments ranging from INR 1,000cr
to 1,500cr in the next five years. Other missions like AMRUT, Swachh
Bharat Mission, etc. will also help these cities considerably.

Thanks
to such schemes, these non-metros will improve rapidly on their
infrastructure and the quality of life they offer. Job creation will, of
course, be a primary driver for the future real estate demand in these
cities. Simultaneously, the inter-city air connectivity in many of them
is set to improve, thanks to a new aviation policy. With high-speed
trains to be introduced and rail corridors planned, travel time to tier I
cities will reduce considerably and rail connectivity to other tier-II,
III cities will also improve. The to-and-fro movement of people and
businesses will increase.

The residential asset class will see
maximum growth thanks to these developments. In some cities, the next
few years are likely to bring high-speed rail connectivity; as a result,
residents of these cities will be just about 45-60 minutes away from
tier I cities. For example, living in Chandigarh and working in Delhi
will become an entirely viable proposition. Currently, it takes around
four hours to travel between these two cities.

Also, better
education and healthcare facilities are coming up in many of these
cities even now. With the social infrastructure improving, the future
will bring a significantly improved environment for businesses, as well.

Apart from state capitals and the future Smart Cities,
non-metros with access to IT talent and a good presence of IT/ ITeS
occupiers – for example Coimbatore and Kochi – will develop rapidly.
That said, there will be divergent rates of growth within this group of
non-metros, so they will not all deliver uniformly. Much depends on the
performance of local governance bodies, and whether they will be able to
display the same efficiency as the states and Centre when it comes to
implementing government programmes. Currently, cities such as Nagpur,
Surat, Jaipur and Indore are seeing very proactive measures being taken
by their local governance bodies. This kind of performance will be one
of the main yardsticks with which to measure future growth - and
therefore investment potential.

The Rationale For Institutional Investors

These
cities always need to have quality players, especially to build
world-class infrastructure. This is an opportune time for institutional
investors to identify the right products being developed by credible
developers, meaning those who follow corporate governance practices and
financial discipline.

At the same time, it would not be
appropriate to say that non-metros are an alternative to tier I cities
when it comes to real estate investments. Both types of cities have very
different dynamics - for example, the trade volumes are much larger and
growth prospects much higher in tier I cities. Over the past two years,
only well thought-out projects by good developers have displayed good
sales volumes in tier I and tier II cities. However, non-metros have
lower entry levels, and as the micro-locations within these markets
upgrade and provide more employment opportunities, demand for real
estate will reach higher scales.

All these urban areas continue
to see a shortage of affordable housing – a segment that provides a
clear opportunity for the markets to grow by matching end-users'
requirements. Though investors should not expect appreciable returns in a
short term of 2-3 years, none of the non-metros will prove to be a bad
bet for long-term investors.